Reuters NEXT-Investment bankers see dealmaking lull storing pent-up demand

Greenhill & Co

08/11/2023 20:31

By Anirban Sen
       NEW YORK, Nov 8 (Reuters) - Some of the world's top
investment bankers said on Wednesday that a drop in corporate
dealmaking in 2023 sets the stage for a pick-up in activity once
uncertainty around the global economy, geopolitical conflicts
and regulatory hurdles subsides.
    Global mergers and acquisitions (M&A) totaled $2 trillion in
the first nine months of this year, down 27% from a year ago to
their lowest level since 2013, according to LSEG data. This has
fueled soul-searching among investment bankers about the
prospects for their business.
    "CEOs and corporate boards do not need to have a very clear
picture of what the future will look like, but they need a
degree of stability," Goldman Sachs Group Inc  GS.N  global M&A
co-head Stephan Feldgoise said at a Reuters NEXT conference
panel. "I'm reasonably bullish that this will return, but
obviously it will be in fits and starts."
    Uncertainty over the Federal Reserve raising interest rates
further to fight inflation, the conflicts in the Middle East and
Ukraine, concerns about a potential economic slowdown and
growing hostility among antitrust regulators to big deals have
all weighed on the M&A market. 
   "You can see why some companies are saying, if I don't have
to do this deal now, maybe it is more prudent to wait," Bank of
America chairman of global M&A Steven Baronoff told the panel.
    There are green shoots. Last month, oil major Chevron Corp
 CVX.N  said it would acquire Hess Corp  HES.N  in a $53 billion
deal, less than two weeks after rival Exxon Mobil Corp  XOM.N 
said it would buy Pioneer Natural Resources  PXD.N  for $59.5
billion -- the two biggest transactions so far this year.
    JPMorgan Chase & Co  JPM.N  global M&A head Anu Aiyengar
pointed out these two deals were all-stock and said more
companies are using their shares as currency to overcome
acquisition targets' concerns about locking in a cheap
valuation, which they would risk if they sold for cash.
    "Our (deal pipelines) are at one of the largest levels that
you've seen in five-six years. Some (companies) will come out
and take the lead," Aiyengar said. 
    She added that companies were more willing to battle
regulators in court over their deals in light of high-profile
legal victories some, such as Microsoft Corp  MSFT.O  and
Illumina Inc  ILMN.O , have scored. "Litigation has moved from
being an insurance policy to being a strategy," Aiyengar said.
    Centerview Partners investment banking co-president Anthony
Kim said that his firm continued to invest in its talent even
though it was a tough year for the sector, as it need to make
sure it will capitalize when conditions improve. 
    "Things are improving and we need to plan for the future,"
Kim said.
    Mizuho's Americas head of investment and corporate banking
Michal Katz, whose bank inked a deal in June to expand in the
United States with the $550 million acquisition of M&A advisory
firm Greenhill & Co Inc  GHL.N , said there the challenges in
the dealmaking environment offered opportunities to acquirers
who can structure deals creatively.
    "Complexity creates opportunity. If you are a corporation or
a private equity firm that can put together a structure that
bridges the gap on valuation, you will be able to get support
from your financing partners," Katz said. 

 (Reporting by Anirban Sen in New York; Editing by Chizu
Nomiyama)
 ((Greg.Roumeliotis@thomsonreuters.com; +1 646 223 6022; Reuters
Messaging: greg.roumeliotis.thomsonreuters.com@reuters.net))